Car companies expect single-digit growth in FY21

For a large part of the car and SUV segment, prices are set to increase by a moderate 3-5%, and industry executives expect the impact to get absorbed by the market by the middle of the fiscal year. New Delhi: Maruti Suzuki, Hyundai Motor and Mahindra & Mahindra, the nation’s top three passenger vehicle makers, expect the automobile market to grow in low single digits in fiscal 2021, after a slow start to the year.

A favourable base to compare with after a steep fall in sales this year, low interest rates and new rules that give the taxpayer an option to choose lower I-T rates are among the key reasons driving their estimates. But they expect sales in the first two quarters to be flat or even fall marginally, owing to pricier BS-VI models.

Their optimism, though, isn’t shared by two-wheeler and commercial vehicle makers, where industry executives predict the market to remain in the negative zone because the price hikes after BS-VI rollout in April are going to be steep at 10-15%.

‘Gradual Recovery Expected; Next Year may See Low Single-digit Growth’

For a large part of the car and SUV segment, prices are set to increase by a moderate 3-5%, and industry executives expect the impact to get absorbed by the market by the middle of the fiscal year.

Maruti Suzuki managing director Kenichi Ayukawa said the market had improved somewhat in the past three months. “But we don’t expect demand to improve significantly. It will be a gradual recovery; next year we are expecting low single-digit growth,” he told ET.

The guidance that automakers give to their parts suppliers also indicate a slow recovery in fiscal 2021.

Maruti Suzuki has indicated production of 1.65-1.7 million units to its vendors, several people in the know told ET. This suggests growth of 3-6% over the expected volume in the ongoing fiscal year. The local unit of Japan’s Suzuki Motor has produced 1.33 million units between April and January this fiscal year, a decline of 14.4%.

Hyundai Motor India has set itself a target of 525,000 units for the domestic market in calendar year 2020, according to its guidance to vendors, indicating the expected growth at 3%.

The company is cautiously optimistic about next year, Hyundai Motor India MD SS Kim said. “We expect the first half to remain tough. However, things should pick up from the second half.”

‘PICKUP FROM MID-AUGUST’

Pawan Goenka, the MD at M&M, expects a pickup from around mid-August to early September. “After that, hopefully everybody will get back,” he added. In fact, the outlook of passenger car makers has improved after the festive season. One of the reasons is that the risk of a clogged inventory before the implementation of the BS-VI rules has eased significantly, as companies have planned for the transition meticulously. Several automakers halted the production of the BS-IV vehicles in January itself.

Interest rates have also come down. Bankers have reduced vehicle loan rates by 0.4-0.6 percentage points in the past three to four months. This has resulted in lower cost of ownership for buyers. The budget proposal to introduce a lower income tax rate for those who don’t seek incentives is likely to encourage many people to channel their tax savings to buy vehicles, industry trackers said.

PRICE WORRIESTwo-wheeler price due to BS-VI is expected to be step.Meanwhile, in two-wheelers and trucks, industry executives said, price hikes because of the introduction of the stringent emission standards would be steep. This is going to exacerbate the impact from softness in the rural economy.

Daimler India Commercial Vehicle MD Satyakam Arya said the market for CVs would shrink even in the best-case scenario. The worst-case scenario will be that the industry may drop to 150,000-160,000 trucks, which is a steep double-digit decline. In the best-case scenario, that if the economy revives, it would be about 220,000 trucks, which is an 8-10% decline, he added.

TVS Motor expects industry demand to remain challenging in the current quarter. “Sharp cost increases should lead to marginal decline continuing in first half of next financial year. The company expects a recovery only in the second half,” the management had said in a post-earnings call to analysts.

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